How rational is your strategy?

Kieran Levis

Kieran Levis believes that Richard Rumelt's Good Strategy/Bad Strategy is the most sensible, readable recent book on this widely misunderstood and much abused subject. Here he explains why Rumelt's book is particularly instructive considered in conjunction with an even wiser one: Daniel Kahneman's Thinking, Fast and Slow.

Any thoughtful adult who reads Daniel Kahneman's masterly account of the limits of human rationality will see the world in new light. Both writers are empiricists and realists, but Richard Rumelt is not immune from some of the delusions and cognitive traps that Kahneman warns against. None of us are.

Rumelt's starting point is that much of what calls itself strategy is wishful thinking or waffle. Strategy is not setting goals, let alone missions, visions or values. He defines it as a cohesive response to an important challenge. If it doesn't deal coherently and honestly with the challenges the organisation faces and how to overcome them, then it isn't strategy. Lehman Bros' 'strategy' in 2006 was to gain market share by increasing its 'risk appetite': it would take deals so risky that none of its competitors would touch them. We all know how that worked out.